Firms are currently compensated for the costs of hiring someone new to replace a reservist going away on operations.

However, Mr Hammond said that a further cash bonus will give small businesses more reasons to employ reservists.

Whitehall sources said the exact figure has not yet been decided, but indicated that it was like to be “hundreds of pounds”.

“We are looking at the equation around financial incentives,” Mr Hammond said. “I would like to look at financial incentivisation for those employers for whom it matters. It would be direct financial incentivisation. It means cash - it means cash when their employees get called out on reserve service.

“Now that does matter to small employers. If I talk to the large employers they're not interested in financial incentives. They do this because it’s good for their business and because it’s part of their corporate social responsibility.”

Mr Hammond is still wrangling with the Treasury over how significant the cuts will be to his department in the upcoming Spending Review.

He wants money earmarked for the Department of Health and the Department for Education to be used to ease the impact of cuts on the Ministry of Defence.

Poor economic growth and tax revenues mean the Government is still borrowing £120 billion a year, forcing ministers to extend the austerity programme into the next parliament.

The Treasury is looking for cuts worth £11.5 billion from Whitehall departments whose budgets have not been protected.

Spending on the NHS, schools and international aid has all been ring-fenced in the review.

Spending on defence equipment will rise in 2015-16, but the remaining part of Mr Hammond’s budget, which funds Armed Forces personnel, could be cut by up to 5 per cent.

Defence chiefs have said that could force yet more military redundancies.

To avert such job losses, Mr Hammond is arguing that some of the protected departments’ cash should be transferred to his department.

He said the need to increase the size of the reserves was one way to combat the cuts.

“Our budget has been reduced and we had to decide how we were going to absorb that budget reduction,” Mr Hammond added. “What we decided to do, with military advice, was to reduce the numbers in the regular army, to increase the reserves and to ensure that we provided the equipment that the reserves needed. The alternative would have been to maintain numbers that were unsustainable, that the taxpayer wasn’t willing to fund, and under-equip them as has been done in the past.”

Mr Hammond said that employers will also be given “more certainty” about when members of staff could get called up to take part in operations.

Under the proposals - to be set out in a White Paper before Parliament breaks for the summer - the Territorial Army is due to be renamed the Army Reserves to reflect a greater role.

He rejected suggestions by Tory MP Colonel Bob Stewart that the shake-up was an effort to "get an army on the cheap" and that someone at the Ministry of Defence was "smoking a lot of dope" to believe that 30,000 reserve troops would be able to deploy.

Mr Hammond said: "We'll get the reserves up to 30,000. The reserves had been much higher than 30,000 in the past. They've been allowed to atrophy over the last couple of decades since the end of the Cold War."